Analyzing the External Environment Flashcards
What is an external analysis?
When you scan and evaluate the external environment
Why do companies do an external analysis?
You have to see what’s going on and see the implications: What does it mean for me, for my business, or for my competitors?
Give an example of a change in the external environment and explain how it can be an opportunity and a threat
A increase in the Canadian dollar can be an opportunity or a threat. If a company imports goods from US to Canada it is a threat because it will cost more money to import the same number of goods. If another company imports goods from Canada to US, it is an opportunity because goods from Canada to US are cheaper
What are the two types of external environments? Give an example of each
General environment: affects all businesses (eg. interest rates)
Specific environment: affects industry participants (eg. number of suppliers, number of buyers, new competitors, types of substitutes)
What are some benefits of an external analysis?
- Makes managers more proactive (more prepared for changes in the environment)
- Provides information used in planning
- Helps organization get needed resources (planning ahead to get resources cheaper instead of at the last minute)
- Helps organizations cope with uncertainty
- Improves consistency and performance
What are some challenges of an external analysis?
- Forecasts are imperfect (future in uncertain)
- Does not help with rapid change
- It’s time consuming
What model do you use to do an general external analysis?
PEST (identifies general trends and changes)
What model do you use to do a industry specific external analysis?
Porter’s Five Forces (analyzes competitive pressure; predicts industry profitability)
What do you look for in an external analysis?
Present, trends, quick changes
What do you look for in the present?
What do conditions look like today?
What do you look for in trends?
Trends are slower changes that are happening all the time and that take a long to time change completely so you can see where trends are going and can adjust to them (if you read the trend correctly). You are looking for what may change: anticipate the changes in the environment so that your strategy stays consistent with the environment
What do you look for in quick changes?
These can be predictable or surprising: you can anticipate the possibility of change (through news and media) and can prepare for it
What do you do to guard yourself against unpredictable changes?
Try to always have a contingency plan and/or resources that you can draw on
Can quick changes be opportunities?
Yes, but you need to have resources ready to act on them
